Your tax report

There's a well-known saying in aviation: Takeoffs are optional, but landings are mandatory. This is a safety-related aphorism for pilots, which refers to the fact that if you feel something is wrong, you can always postpone or cancel a takeoff. However, once you have taken off, there is no choice - you have to land.

There's a clear parallel to this in investments, and I'm sure you can guess what that is: Buying is optional, but selling is mandatory. Before you invest in something, you always have the choice to change your mind and not invest. However, once you invest, you will eventually have to redeem your investments. Why? Because the entire objective of investing is to sell your investment to make a profit ultimately. Investing is a means to earn money, and the act of making the investment only benefits someone else until it is sold for a gain. The end goal of investing is only achieved when the investment is converted back into cash upon sale.

Given this undeniable truth, it's a little ironic how focused investors are on buying rather than selling. However, the final stage is actually missing here, and that is: paying taxes is mandatory. The recent change in debt fund taxation brought this point home powerfully. As you can read in the cover story of 'Mutual Fund Insight' May 2023 issue, the tax changes that have been made may require some shifts in your strategy as a mutual fund investor. Otherwise, the exact same investments might boost your tax bill, and worse, may do so unexpectedly years later when these changes may have dropped from your attention.

Tax can never be ignored
The sad fact is that apart from tax-saving investments, which are a different topic altogether, relatively few mutual fund investors pay attention to the tax efficiency of their investments. By and large, they buy and sell according to whatever investment logic they follow, and when the time comes to file their income tax returns for the year in which they sold, they pay whatever their accountant says is due. This is really pointless and suboptimal.

No one should steal on taxes, but you definitely need to choose and arrange your investments so that your legitimate tax outgo is minimised. Tax efficiency is your duty towards yourself. Moreover, it's not just about straight gains. There are other issues that investors do not appreciate - for example, compounding. Often, you switch from one fund to another. The less you pay on each switch, the more available for future compounding. Moreover, tax efficiency should always be considered in your asset allocation. The three forms of returns - capital gains, dividends and interest are taxed differently and are available in different asset types in different proportions. This must be considered while deciding on your asset allocation.

The problem, as always, is one of knowledge. How will you figure out the effect of your investment and redemptions accurately? For mutual funds, the tax percentage is a function of the equity holding of the fund. What's worse, these change with time. In equity funds, when long-term capital gains tax was restored in 2018, a quite complex calculation was added to the task list of investors. In any investment, gains made till that day were tax-free and, after that, were taxed but subject to a tax-free annual allowance. For these new tax rules, the calculation complexity will rise and keep rising as time goes by although in a different way.

We have your tax report
So how can investors deal with this? As always, that's where Value Research comes in. Specifically, the 'Tax Report' that members of the Value Research Premium service have access to. Here's what you get in this unique report:

• A comprehensive estimation of your tax liability for any given year.
• It considers all forms of investment taxation, capital gains, dividends and interest income.
• It works perfectly with all types of investments you track on Value Research Premium, including stocks, mutual funds, deposits of all types, NPS, and more.
• You can choose for which financial year you need the report.
• You can also choose which tax slab you fall under so that we can estimate the tax on your interest income.

This is a uniquely useful tax helper available to our members. If you want to manage your investment tax-efficiently, the only substitute is to hire an experienced personal accountant. Needless to say, that's something very few people need or can afford.

A lot more
Of course, there's more to Value Research Premium, a lot more. Value Research Premium has a set of invaluable tools, by far the best that any Indian mutual fund investor would have access to. Here's a brief description of some of what you will get:

Portfolio Planner: These are custom portfolios that are suggested to you as part of your premium membership. The algorithm we have evolved considers your goals, income, saving capacity and a number of other factors.

Portfolio Analysis: Only a few members are starting their investing from scratch. For most of you, a big question is whether your existing investments fit your goals. This is often a hard question to answer because there are a lot of implications of switching old investments, not the least of which is taxation. In the Premium system, you can get an evaluation and a suggested fix list based on our expert teams' inputs.

Analysts' Choice: Often, investors want to choose their funds for some particular investment purpose. There are over 1,500 available to you, and even with the help of our rating system, it's a lot of work to zoom in to the right set. However, that won't be a problem for you because, as a Premium member, you will have access to Analyst's Choice. Instead of the 39 official types of funds, we have created eight investor-oriented categories that match precisely with your financial goals. In each of these, our analysts have carefully selected a handful of funds to serve you with the best outcomes.

So head over to Value Research Premium, read more details of these features, see glimpses of what Premium has to offer, read testimonials of our members and subscribe at a discount of up to 30 per cent.